The Drop In Google’s “Revenue Per Click” Just Means You’re A Better Marketer

Posted by Rob Rose on July 20, 2009 at 09:53 PM PDT

Last week, Google reported their second quarter earnings, and people were all aflutter (or atwitter as the case may be) that the powerhouse of Internet advertising might be signaling a slowdown in online search marketing.  To be clear, Google basically came out smelling rosy in most categories, including beating Wall Street expectations by a little bit on total sales and better than expected earnings.   So, they sold well, and kept costs down.  

But the angle that many, including BusinessWeek, took was a note about a drop in Google’s “revenue per click”.   It was that fact that many speculated fed the 3.4% decrease in the share price on July 16th.   As the BusinessWeek article concluded:

“The downturn is finally getting to Google,” says Jeffrey Lindsay, a senior analyst at Sanford C. Bernstein who has an outperform rating on Google’s stock. The drop in revenue per click shows that Web users are clicking on ads to comparison-shop without buying products, and buying lower-cost items online compared with a year ago, Lindsay says. Those behaviors mean ads are less valuable to marketers, and result in lower payments to Google.”

But is that really true?  I don’t think it is.

Now let me be clear – I’m no economist and I’m certainly not one of the fancy experts at one of the analyst firms, BusinessWeeek or Wall Street Journal.  But as a marketer with (what I consider anyway) to be a fairly big Google bill every month, I think there’s something more interesting at play here.

I just think that marketers are getting better at their job.

Now, I won’t even try to predict how the drop in “revenue-per-click” will affect Google’s long-term revenue, earnings, and ultimately stock price.  But what I do know is that I’m getting more clicks now for the same budget (actually less) than I was a year ago.  And if I’m getting more clicks for less money, it means that I’m not writing bigger checks to Google for more clicks.  Therefore Google’s “revenue-per-click” for me – is down. 
  But, here’s the thing, I’m not spending less with Google, and I’m very happy to see my budgets expanding on Search Engine Marketing.  So, that flies in the face of the analysts opinion.   But how does that work?   

Years ago, Google introduced the “Quality Score” for ads running on the platform.  But, last year around this time, they rolled out some changes to that Quality Score that really raised alot of eyebrows.  There’s a ton of information on it, and I won’t go to the detail of explaining it here – but if you want to read about it, there’s an excellent article on SearchEngineLand about it.  And, if you’re into video, there’s a wonderful video on it on YouTube, where Google’s head economist (yeah, you figured they’d have an economist right?) explains it. 
  
Basically though, the theory is pretty simple – you can lower your Cost Per Click rate, by paying close attention to the quality of your ads, the clicks you do get, and the quality of the landing pages you send them to.  Basically, the way the Google PPC auction works is to reward (by elevating in position) those that have better relevance, more clicks and better landing pages.  So, therefore, even if you aren’t the “top bidder” you can rank higher – and thus lower your CPC. 

I’ve personally watched this happen in my own marketing.  For example, when we try brand new keywords and campaigns, we might be at a $4.00 CPC – and rank really low.  But then we watch, we pay attention, we change things out to garner more clicks and over time, I’ve watched my CPC get cut in half.  Now, to be clear, I’m not paying less.  In fact, I’m paying the exact same amount.  I’m just getting double the clicks for the same budget.   And it’s up to me to make sure I’m converting those clicks at my landing page at a more improved rate once I get them there.

So, in my brain, it stands to reason that if more and more marketers are getting better at this stuff, they’re paying the same amount for more clicks right?  So, my working theory here is that the drop in Google’s “revenue-per-click” isn’t that
it’s signaling any kind of slowdown in Search Marketing – it’s that marketers are getting better at optimizing their ads for clicks, and Google’s Quality Score on ads is working as they designed it.

Again, maybe I’m missing something in the bigger picture of how auction processes, algorithms and whatnot work – but at the very least, I hope this is a nice reminder that paying attention to Google Ad Quality and just as importantly, the quality of your landing pages, is an important ingredient for lowering your Cost Per Click.